Institute for Supply Management™ (ISM) Certification Program

Certified Purchasing Manager (C.P.M.) Examination Specifications
Effective January 1, 2001
Final draft Published September, 1999

MODULE 3: VALUE ENHANCEMENT STRATEGIES

1. Sourcing Analysis
2. Supply and Inventory Management
3. Value Enhancing Methods
4. Forecasting and Strategies

Part A. Sourcing Analysis

TASK 301: Conduct decisions to "make or buy," privatize, or outsource products or services.

Knowledge of:

1) Procedures for conducting "make-or-buy" analyses

1. Determining feasibility
2. Determining need
3. Methods/processes

1.0 Analysis of components
2.0 Break-even analysis
3.0 Cost estimation processes
3.1 Buying costs
3.2 Making costs

2) Factors influencing "make-or-buy" decisions

1. Long-term material supply implications
2. Strategic factors
3. Labor and other organizational constraints
4. Quality considerations
5. Risk
6. Supplier technical support capability
7. Socioeconomic goals/objectives
8. Expertise in the area

3) Post audit evaluation of "make-or-buy" decision

4) Privatization/outsourcing

1. Definition
2. Applicability
3. Procedures for conducting
4. Criteria

1.0 Cost
2.0 Technology
3.0 Investment
4.0 Service level (flexibility)
5.0 Differentiation
6.0 Quality
7.0 Political considerations

5. Monitoring/evaluating the project
6. Public/private partnerships

TASK 302: Conduct decisions to lease or buy equipment.

Knowledge of:

1) Types of leasing arrangements

1. Operating lease
2. Financial lease

1.0 Full payout
2.0 Partial payout
3.0 Lease/purchase
4.0 Lease options
3. Leveraged lease
4. Master lease
5. Dry lease
6. Sale and leaseback
7. Other types of leases

2) Types of lessors

1. Third-party
2. Manufacturers
3. Banks
4. Internal
5. Other

3) Factors in a lease/buy decision

1. Inflation
2. Obsolescence
3. Maintenance services
4. Capital/budget considerations
5. Administrative overhead
6. Reimbursement from third parties
7. Interest
8. Ownership benefits
9. Limitation of sources of supply
10. Balance sheet considerations
11. Cash flow analysis
12. Depreciation
13. Tax considerations
14. Operating costs
15. Life of the asset
16. Residual value
17. Customization of asset
18. Early termination
19. Payment schedules
20. Insurance
21. Company/organization policy
22. Term of lease
23. Emergency situations

4) Legal/accounting considerations

1. Uniform Commercial Code 2A – Leasing
2. FASB-13
3. Other

TASK 303: Develop financing and leveraging strategies for purchases.

Knowledge of:

1) Depreciation and appreciation

2) Bond and currency markets

3) Market conditions

4) Type of organizations

1. Private
2. Non-profit
3. Public

5) Commodity markets

6) Tax laws

7) Interest rates

8) Payment terms

9) Cash flow

10) Regulations

11) Supplier financing

12) Centralized buying

13) Lead divisional buying

14) Cooperative purchasing

15) Group purchasing organizations

16) Import/export quotas

Part B. Supply and Inventory Management

TASK 304: Organize, control, and minimize the storage of materials.

Knowledge of:

1) Functions of inventory

1. Uncertainty
2. Decoupling
3. Anticipation
4. Economies of scale
5. Transportation

2) Inventory classifications

1. Raw materials
2. In-process
3. Finished goods
4. MRO
5. Resale goods
6. Capital goods
7. Construction materials
8. Hard goods/soft goods
9. Components
10. Obsolete
11. Defective

3) Inventory management systems

1. Order-point

1.0 EOQ
2.0 Time-based

2. Cyclical
3. Just-In-Time (JIT)
4. JIT II
5. ABC Concept
6. Supplier managed systems

1.0 Vendor Managed Inventory (VMI)
2.0 Consignment
3.0 Integrated supply
7. Point of sale/point of use/auto replenishment
8. Other

4) Procedures for determining when to order materials

1. Usage rates/demand variation
2. Safety stock determination
3. Unique items
4. Leadtime

1.0 Purchase order cycle time
2.0 Supplier leadtime
3.0 Transportation leadtime

5) Stores management systems

1. Open stores
2. Closed stores
3. Random access
4. Automated warehouse approach

6) Inventory performance

1. Turnover rate/investment
2. Service level

7) Purchasing’s role in dependent demand systems

1. MRP
2. MRP II
3. DRP
4. ERP

8) Shelf life, expiration rates, and storage conditions

9) Accounting valuation of inventory

1. LIFO
2. FIFO
3. Average
4. Lower of cost or market
5. Retail inventory method
6. Zero-value inventory

TASK 305: Meet with appropriate departments to discuss current material inventories, and establish restock levels or just-in-time strategies.

Knowledge of:

1) Financial implications of inventory

1. Working capital
2. Cash flow
3. Asset turnover
4. Return on investment
5. Inventory costs

1.0 Carrying costs
2.0 Ordering costs
3.0 Stockout
6. Commodity speculation
7. Exchange rate issues

2) Capacity issues

1. Seasonality
2. Contingency plans (i.e., disasters, strikes)
3. Process variation

3) Sales and marketing related issues

1. New product introduction
2. Product discontinuance
3. Obsolescence
4. Promotional activities
5. Forecasting errors
6. Sales plan interface

TASK 306: Determine sources of and reconcile inventory discrepancies.

Knowledge of:

1) Concepts of inventory control

1. Perpetual versus periodic
2. Inventory flow control procedures

1.0 Record systems
2.0 Audit trails
3.0 Cycle counting
3.1 Frequency
3.2 Triggering criteria 4.0 Physical counting
3. Inventory reconciliation procedures
4. External inventory specialists
5. Sources of error

TASK 307: Handle obsolete equipment/materials, surplus equipment/materials, and scrap.

Knowledge of:

1) Reasons for the disposition of obsolete/surplus materials

1. Investment recovery
2. Space management
3. Technical and economic obsolescence

2) Reasons for placing disposal function with purchasing

1. Access to services/sources
2. Knowledge of requisitioners' ordering habits
3. Knowledge of market
4. Knowledge of legal issues regarding disposal
5. Product line discontinuance
6. Changes in labeling requirements

3) Classes of materials subject to disposal

1. Surplus/obsolete inventory
2. Surplus/obsolete equipment, tooling, and fixtures
3. Scrap
4. Waste

4) Hazardous materials

1. Material Safety Data Sheets
2. Manifesting
3. ISO 14000

5) Methods of disposal

1. Return, resale, or trade-in to suppliers
2. Use in other parts of the organization
3. Sale
4. Donations
5. Disposal/recycling
6. "Abandon in place"
7. Cannibalization
8. Reclamation
9. Barter

6) Legal issues regarding the disposal of materials

1. Warranties
2. Liability
3. Tax implications and benefits
4. Applicable regulations

Part C. Value Enhancing Methods

TASK 308: Develop/implement a standardization program.

Knowledge of:

1) General issues in standardization and simplification

1. Advantages and disadvantages
2. Procedures/Steps in applying

1.0 Standardization committees
2.0 Involvement of other departments
3.0 Effects on production methods/operations
3. Application to high-use or high-volume items
4. Application to procurement of facilities
5. Application to procurement of MRO items
6. Brand names versus generic names
7. Administration cost per part number
8. Maintenance cost
9. Legislative issues
10. Cost-benefit analysis pertaining to standardization

2) Organization standards

3) Government standards

1. National Institute of Standards and Technology (formerly National Bureau of Standards)

4) International standards

5) Standards associations/organizations

1. Society of Automotive Engineers (SAE)
2. American National Standards Institute (ANSI)
3. American Society for Testing and Materials (ASTM)
4. International Standards Organization (ISO)
5. Underwriter's Laboratory (UL)
6. National Institute of Standards and Technology
7. Others

TASK 309: Develop/implement a process improvement program.

Knowledge of:

1) Steps in continuous improvement

1. Definition of the process
2. Definition of the measurement system
3. Improvement of methodology
4. Execution of the action plan
5. Results measurement
6. Benchmarking
7. Evaluation and follow-up

TASK 310: Develop a cost reduction, cost avoidance, cost containment program (e.g., value analysis, consolidation of orders/suppliers, leadtime reduction).

Knowledge of:

1) Issues to be considered when establishing a cost-control program

1. Status of the standards program
2. Coordination with other departments
3. Time requirements
4. Effect on quality and service
5. Effect on operations
6. Calculating cost avoidance/reduction
7. Market testing
8. Top management support
9. Design flexibility
10. Product longevity

2) Elements of a cost-control program

1. Organization-wide buying agreements

1.0 Centralized buying
2.0 Lead divisional buying
3.0 Commodity councils
2. Pool buying and cooperative purchasing
3. Long-term agreements
4. Contracting for total requirements
5. Supplier productivity
6. Target cost
7. Target price
8. Consortia

3) Quality issues

1. Purchaser coordination with quality assurance/control
2. Purchaser coordination with receiving/using department
3. Coordination with supplier quality assurance/control efforts
4. Mutual cost reduction

4) Value analysis/value engineering

1. Process
2. Techniques
3. Organizational requirements
4. Function in relation to cost and quality

5) Other forms of cost control

1. Improved form, fit, and function
2. Easier use
3. Administrative savings
4. Improved quality

TASK 311: Coordinate the introduction of new and modified products and services with appropriate departments.

Knowledge of:

1) Role of purchasing in product/service design

1. Research and development
2. Substitution
3. Product innovation
4. Contracting for design services
5. Qualified Products Lists (QPL)
6. Early Supplier Involvement (ESI)
7. Early Purchasing Involvement (EPI)
8. Sourcing and cost profitability issues

Part D. Forecasting and Strategies

TASK 312: Plan purchasing, sourcing, and supply strategies based on forecasted data.

and

TASK 313: Develop supply plans and strategies based on forecasts of future demand.

Knowledge of:

1) Buying strategies

1. Hand-to-mouth buying
2. Buying to requirements
3. Forward buying
4. Speculative buying/volume purchase agreements
5. Life-of-product supply
6. Just-In-Time
7. Consignment
8. Commodities

1.0 Market dynamics
2.0 Exchanges
3.0 Terminology
9. Supplier replenishment systems
10. Outsourcing

2) Implementation techniques

1. Hedging
2. Spot buying
3. Dollar averaging
4. Contracting

1.0 Long term contracting
1.1 Escalation clauses
1.2 Life-of-product contracts
1.3 Multiyear contracting
2.0 Future delivery contracting
3.0 Use of options
4.0 Buying capacity reserves

5. Decision tree analysis

3) Forecasts of volume

1. Determining annual requirements
2. Part (or product) life

4) Supply markets relative to short- and long-term buying needs

5) Supply chain management strategies

TASK 314: Provide forecasted data of future organization buying requirements to suppliers.

Knowledge of:

1) Elements of Early Supplier Involvement (ESI)

1. Manufacturing process
2. Capital acquisitions budget
3. Product or service development/implementation
4. Cost
5. Quality
6. Availability
7. Technology
8. Design
9. Product co-development
10. Cycle time

2) Confidentiality

3) Parameters for disclosure

1. Product Development Model
2. Production plan

4) Legal implications

TASK 315: Develop and maintain market awareness through merchandise shows, trade periodicals and other resources to secure new product and pricing information.

Knowledge of:

1) Rationale

1. New product development/introductions
2. Alternate source development
3. Evaluation of supply forecasts and market capacity
4. Development of supplier profiles
5. Technological updates

2) Processes for collecting, prioritizing, filtering, and managing the data

3) Dissemination of information throughout the organization

TASK 316: Provide data on current and future market conditions to management, sales management, and/or user departments.

Knowledge of:

1) Purpose of forecasting

1. Quantity
2. Industry capacity and availability
3. Cost or price
4. Technology
5. Planning
6. Ensured supply

2) General issues in economics

1. Industries, firms, and markets
2. Global markets
3. Business cycles and trends
   1.0 Price elasticity
   
4. Transportation trends
5. Economic indicators

1.0 Money supply
2.0 Interest rates
3.0 Inflation
4.0 Level of employment
5.0 Trade and exchange rates
6.0 Balance of trade and payments
7.0 Gross Domestic Product
6. Governmental policies

1.0 Fiscal policy
2.0 Monetary policy
3.0 Tax rates
4.0 Budget deficits
7. Net national income

1.0 Personal income
2.0 Corporate income
8. Political stability/instability
9. World industrial migration
10. Import/export issues
    1.0 Free trade versus protectionism
    1.1 Trade deficits/surplus 2.0 Countertrade 2.1 Barter
    2.2 Offset 3.0 Other
11. Environmental

3) Economic concepts and terms used in forecasting

1. Price Indices

1.0 P.P.I.
2.0 C.P.I.
3.0 Implicit price deflator
2. Interest Rates
3. Economic indicators

1.0 Leading
2.0 Lagging
3.0 Coincident
4. Inflation/deflation
5. Capacity utilization
6. Economic indexing

4) Sources of data used in forecasting

1. ISM Report On Business® (Manufacturing and Nonmanufacturing)
2. Government publications (international and domestic)

1.0 Survey of current business
2.0 Federal Reserve Bulletin
3. Private publications
4. Commercial forecasts
5. Regional surveys
6. Internal historical data
7. Industry sources
8. Internet

5) Forecasting methodologies/techniques

1. Short-term versus long-term forecasting
2. Macro versus micro forecasting
3. Delphi concept
4. Correlation/regression analysis
5. Time series
6. Central tendency
7. Variability
8. Analysis of Cyclical Data
9. Trend Analysis

6) Factors that can affect forecasts

1. Fluctuating leadtimes
2. Changing labor conditions
3. Changes in money markets
4. Political factors
5. Technological shifts
6. Climatic conditions
7. Changes in global trade

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